Why Are ‘Request for Quote’ (RFQ) Systems Used Instead of Order Books for Some Derivatives?

RFQ systems are used for less liquid, customized, or large-volume derivatives (like exotic options or complex swaps) where a traditional order book would be too shallow, leading to massive slippage. In an RFQ system, a trader asks a selected group of market makers for a price quote.

This allows for a negotiated, firm price, often the mid-price, which minimizes market impact and slippage, ensuring a better execution than a market order on a shallow book.